Halifax Manufacturing allows its customers to return merchandise
for any reason up to 90 days after delivery and receive a credit to
their accounts. All of Halifax's sales are for credit (no cash is
collected at the time of sale). The company began 2018 with an
allowance for sales returns of $320,000. During 2018, Halifax sold
merchandise on account for $11,700,000. This merchandise cost
Halifax $8,775,000 (75% of selling prices). Also during the year,
customers returned $460,000 in sales for credit. Sales returns,
estimated to be 4% of sales, are recorded as an adjusting entry at
the end of the year.
Required:
1. Prepare an entry to record actual merchandise returns as they occur (not adjusting the allowance for sales returns), and then record a year-end entry to adjust the allowance for sales returns to its appropriate balance.
NEEDS 4 ENTRIES
record actual sales return
record the return of merchandise to stock
record year end adjusting entry to estimated return
record the adjusting entry for the estimates return of
merchandise to inventory
2. What is the amount of the year-end allowance
for sales returns after the adjusting entry is recorded?
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